LAMONT: Is COVID-19 Pulling a Pin on a Bigger Debt Crisis?

A selection from Dougald Lamont's speech in the Manitoba Legislature on Wednesday May 13.

Edited for clarity.

***

I'm tired of hearing that these times are unprecedented. These are precedented times. We've had pandemics before. We had a pandemic here a hundred years ago. My great-grandfather died in the Spanish flu epidemic in 1918. He left behind a pregnant wife with five children. And they grew up in grinding poverty because there was nothing to help them. He died, and he was the breadwinner.

My father was born in March 1933, which is the very depths of the Depression in Manitoba. He grew up in a shack in Headingley. And this year looks more like 1929 than many people are willing to recognize and admit.

We have had a decade of where the economy has been driven mostly by low-interest debt. It hasn't been driven by industrial investments. It hasn't been driven by people building new plants and factories. It's been overwhelmingly driven by debt, so it hasn't created good jobs.

Over 50 per cent of people between the ages of 25 and 54 are working part time. When you look at the people who've been most affected by the layoffs in the last two months, it's people who are precarious workers, people who are vulnerable, People who had salaried jobs are generally fairly well protected, but it's all those people who were working part time, all those people who depended on tips, people in the restaurant industry who are losing. A month ago, the stats came out that one in 10 restaurants in Canada has closed for good. And it's not going to stop unless we do something to intervene.

My concern is that while the impact of the COVID-19 crisis is huge, that it's actually setting off something much deeper, something much larger. I am talking about a debt crisis which has been brewing for years, not just under the current federal government or provincial government, but since 2008 and before.

The real danger is that COVID-19 is just like a pin on a grenade and we're going to be setting off a much larger debt crisis - an insolvency crisis. The Premier (Mr. Pallister) and I have both talked about this, that 50 per cent of Manitobans and 50 per cent of Canadians are a paycheque away from insolvency, and the reason for that is because they have so much debt.

And the reason they have so much debt is because they've been told to take it on, because they have had no other opportunity-they haven't had a raise. It's hard to get a job. It's hard to get a full-time job. It's hard to get a full-time job with benefits. And, as a result, it's been very, very easy to get debt.

I get email after email from banks offering me new credit cards. They're offering me lines of credit that I don't need and that they shouldn't even be offering me. I'll pay it back, but this is the thing: we've been pushing debt on people, telling them that that's what they're expected to do and we have denied them the opportunity to do anything but take out debt because the only way you can buy a new house is to take out a mortgage. The only way you can afford to buy things is to take out a credit card. The only way you can afford to go to university or college is if you take out a student loan.

The 2008 financial crisis was caused by mortgages. And there was a massive bailout of banks, including in Canada. We're doing another bailout right now. What are we bailing people out for? It's mortgages, because we've had policies at the national level and the international level which have been absolutely reckless in persuading people to take on debt that they can't possibly afford.

And now, we're going to have to pay the piper, and I don't know that we're going to be able to do so as the amount of debt in the world is so great - whether it's corporate debt, government debt, or personal debt. This is something that is not recognized. I don't think it's recognized by this government, but I also don't think it's recognized by the economists and the advisers that they listen to.

And that's why I'm so horrified by what's happening, because I can see what's happening. The assumption that we're just going to have a V-shaped recovery, we're going to bounce right back ignores the fact that people are in so much debt and that that depth of that debt is so great.

There are World War II movies about blowing up dams. And, when you blow up a dam, you drop a single charge and wait. It sinks down to the bottom, goes off and then the pressure of the water itself is what destroys the dam, not the bomb. And that's what we're looking at in terms of our economy and in terms of debt.

Like I said, it looks more like 1929 than anyone recognizes and that this is an insolvency crisis. I hope it doesn't happen, but there are many, many indications that it will, and with the exception of this bill (Bill 43) the government's actions to lay people off, liquidate public assets, increase unemployment and reduce incomes will make a recession worse.

Because, like I said, this looks like 1929 with a pandemic added to it. You've had a euphoric investment and too much debt driven by what's called, 'easy money'. Too many people lending, too many people borrowing, using that money to bid up stock prices and real estate, so it makes a lot of money for people in the short-term, but it means you have massive inequality and people can't afford a place to live.

When this crisis happens, everyone gets concerned about inflation, but all of a sudden you get deflation. And people think, well, deflation, that's great. Prices are going down. But there's a huge problem there, is that it's not just prices going down. It's wages going down. It's the number of people working going down.

And you have all sorts of things dropping in price, and when you have debt against all that, that debt doesn't disappear. And, when you have a mortgage that's 200 or 400 or 600 thousand dollars and all of a sudden, you're asked to do job-sharing, you might not be able to handle it. You might go broke. You might go bankrupt.

And we're talking about thousands of people, tens of thousands of people. Over 700,000 Canadians have applied for relief on their mortgages to banks in the last two months. They're putting off a billion dollars' worth of interest a month. Over 400,000 people are putting off paying their credit cards.

There's going to be a point when, all of a sudden, this relief is going to end, and if people can't pay their rent now and can't pay their mortgage now, or can't pay their credit card now, there's no way they're going to be able to pay it off in three months' time.

This is why it's so important: every indication is that, like I said, every indication, to me, is that these are things that are going to happen. People are talking about a V-shaped recovery. Other people are talking about a U-shaped recovery, which is optimistic, and other people are talking what's called an L-shaped recovery, which means we go straight down, we stop there, and then we just-and that's it. We don't have a recovery.

In situations like this, when the private sector goes up in flames, the solution is not to set fire to the public sector as well. It's to make sure that you're holding on to as much as you can because the public sector can be a bulwark. It's not about expanding the public sector; it's about not cutting it. But it also means that there are times, like in the Great Depression, when governments act to recapitalize and rebuild the private sectors so we can go back to having a mixed economy that works, and that's not what we have now.

The idea that we're going to go back to the status quo is something we should reject. The status quo really was not working for an incredible number of Canadians, an incredible number of Manitobans, whether they're First Nations, whether they're precarious workers, whether they're young people, whether it's people struggling with debt. There are too many people who haven't had a raise and we have an opportunity and an obligation to make sure that we're looking after everybody-everybody-not picking and choosing who winners and losers are, but to look after everybody to make sure that they're safe and secure through this crisis.